The Dolphin project will set a new standard for the Gulf gas sector.

By GERALD BUTT DOHA

Such a pioneering venture could only have been the product of imaginative thinking - and it takes quite a leap of imagination in the first place to see a connection between such a mundane and static object as a gas pipeline and the graceful and fluid movements of a dolphin. But never mind. Appropriate or not, Dolphin is the name, and last March an important agreement was signed to push the project towards eventual realization.
The occasion for the signing ceremony could not have been more appropriate. Delegates from all around the world were in the Qatari capital, Doha, for an international gas conference.

Opening the event, Qatar's energy minister, Abdallah al-Attiyah, spoke of how his country had become the leading exporter of liquefied natural gas (LNG) to the Far East, Europe, the United States and other destinations. "Despite the far reach of Qatar's LNG exports," he said, "we are hoping to be able soon to realize the dream of the Gulf region of building a pipeline network to secure the needs of our neighbors for gas and promote economic integration among its countries." As he was speaking, representatives of state-owned Qatar Petroleum (QQP) and Dolphin Energy Ltd. (DEL) - the company set up by UAE Offsets, the sponsors of the whole venture - were negotiating the final conditions of a term sheet agreement. This contains details of volumes, price and other matters for what the oil/gas business calls "the upstream" - the part of the project related to the exploration for and production of gas, and its processing onshore.

Finally, at a ceremony in Doha, the term sheet was signed. The occasion, one senior oil industry official said, introducing another metaphor into Dolphin-speak, was "the firing of the starting pistol" for the project. All being well, the term sheet will be converted into a production-sharing agreement between QP and DEL, scheduled to be signed before the end of September.
Included in the deal is the all-important element of price - how much DEL will pay for the natural gas that has been brought ashore at Ras Laffan from the North Field. The manner by which agreement on price was achieved is every bit as significant as the figure itself. In any commercial transaction - not least in the Gulf - the seller tries to hold out for as high a price as possible while the customer stands firm seeking a bargain. For months, QP and DEL could not agree on a basic sales price for North Field gas. In the end, a price was imposed on the two sides by political intervention of the highest level from Qatar and Abu Dhabi. The emir of Qatar and the ruler of Abu Dhabi decided that normal commercial considerations could no longer delay a scheme that was of huge benefit not only for the two parties involved but perhaps for the Gulf region as a whole.

Low prices. Qatar was initially unhappy at what it regarded as the low basic price that it would be paid for its gas. But under the deal Qatar will be compensated by receiving extra volumes of the valuable liquids (condensate) stripped from the gas. In the end, both sides said they could live with the agreement.
For the first time in the Gulf, then, political will forced the pace of economic cooperation. The implications for similar cross-border deals - not just for the sale of natural gas - are obvious. "It shows," a Western diplomat in Abu Dhabi said, "where there is a political will, there is an economic way."

The Dolphin project could eventually turn out to be a major Gulf triumph - but success depends also on the cooperation of two international strategic partners which are joint shareholders (each with a 24.5 percent stake in DEL, having paid the substantial fee of $25 million apiece for the privilege). TotalFinaElf of France is the upstream strategic partner and will be responsible for developing an offshore block in the North Field and bringing the gas ashore for processing. It is then the task of the second strategic partner - American Enron under the terms of the deal signed in Doha in March - that will be responsible for the "midstream": the building and operating of the 350-kilometer pipe that will run under the sea from Ras Laffan in Qatar to Al-Taweelah in Abu Dhabi.

So far so good. But as the spring began to give way to the torpid Gulf summer, rumors started circulating that Enron was thinking of pulling out of the project, giving ammunition to the skeptics who continued to insist that the whole venture was nothing more than a pipe-dream - a phrase that brings not only another metaphor to Dolphin-speak but a pun as well. By the end of May it turned out the essence of the rumors was true, but not the explanation. Enron announced in May that it was withdrawing from the project - but as part of the company's global restructuring policy and not as a comment on the prospects for the success of Dolphin. "The project has evolved into a strong upstream and gas transportation and delivery project," said Enron's Middle East managing director, Richard Bergsieker. "We don't believe there is a lot of value Enron can add. The project requires long-term equity investment in upstream and Enron is frankly not an upstream company."

For the time being, the UAE Offsets Group will hold Enron's former stake, pending the selection of a replacement strategic partner. The big question - one that would gauge the attitude of the international oil community towards Dolphin - was whether other companies would come forward seeking to take Enron's place. The answer was not slow coming. Within hours many of the world's major international companies were knocking on DEL's door. "All international energy companies working in the Gulf are interested," said DEL's chairman, Ahmad al-Sayegh. "We are not in a hurry choosing a partner."

The change in the way in which Dolphin has been perceived within the oil and gas community in the Gulf over the past year is remarkable. To begin with, many companies thought frankly that the venture was over-ambitious. Above all, they could not see how a gas sales prices acceptable both to Qatar and Abu Dhabi could be reached. Secondly, they interpreted the involvement of UAE Offsets - a group more associated with the military than with hydrocarbons - in a gas project as signs of a possible struggle for power within the ruling establishment in Abu Dhabi. As such, they were unwilling to appear to be supporting one side or the other. In Abu Dhabi there were also similar misgivings and uncertainties.

But today the mood is quite different - the mist has lifted. Dolphin has been fully accepted as a viable project by the ruling establishment as a whole in Abu Dhabi - not least the Abu Dhabi National Oil Company (ADNOC). As a result, international oil companies have, overnight, lost their inhibitions. With a basic gas price agreed and with the project officially accepted in the UAE, they are keen to get involved in whatever way they can.

None of which should minimize the difficulties further along the line. Even if no other snags crop up, a major technical challenge lies ahead. There are also gas sales and purchase deals within the UAE to be negotiated and concluded - not least with Dubai. A pipeline has been built from Al-Taweelah to Jebel Ali - Dubai's gas-hungry industrial zone. Oman might be interested in buying gas from Dolphin at a later date.
High hopes. Nevertheless, the encouraging developments in the Dolphin project over recent months have raised hopes that a wider Gulf gas network can be developed. In particular, talks between Kuwait and Qatar on the supply of gas from the North Field are at an advanced stage.

In this case, the envisaged deal differs from that of Dolphin. Kuwait is not interested in becoming involved (as the UAE is via DEL) in the upstream or midstream. One of the North Field operating companies, ExxonMobil, would supply the gas and put together an international consortium to construct and operate the pipeline. Kuwait would merely buy the gas from the end of the pipeline.

If the Kuwait project goes ahead, then there is a strong possibility that a branch from the pipeline will bring North Field gas to Bahrain on its way northward up the Gulf. Any political difficulties that might have made such link-up impossible in the past have been removed now that the two states have amicably resolved their long-standing common border dispute after arbitration by the International Court of Justice in The Hague.

So natural gas could soon be on the move within the Gulf in a big way. If this happens, then historians in years to come are likely to point to the Dolphin project - and the political impetus driving it - as the venture which, to mix metaphors again in conclusion, broke the mold.